Annuities get a bad rap. However, much of the negative stigma around annuities stems from a lack of knowledge regarding what annuities really are and how they work.
You can help your clients better understand annuities by breaking down the biggest misconceptions and answering common questions about annuities.
Armed with the facts, clients will have a better understanding as they work with you to explore their short and long-term needs and determine if annuities are a good fit for them.
Below is a guide to help your clients separate fact from fiction when it comes to annuities.
Myth: All annuities are the same
Annuities often get clumped together into one type of product. You can help your clients understand that in reality there are a number of options to choose from when it comes to annuities – just as with stocks, bonds and mutual funds.
You may want to explain to your clients that there are two main types of annuities: fixed and variable, and the names refer to how returns, if any, are generated. Within these broad categories, explain that there are also options to choose between immediate or deferred payments that give people options with regards to when payouts are initiated, right away or down the road.
Myth: All annuities have high fees
While there certainly are fees associated with annuities, these can vary depending on the type of product and carrier. When it comes to annuities, there are low-fee or no-fee options available. It’s critical you help your clients understand both how fee structures work and what variables can change the fee rates for annuities.Myth: Once the money is in an annuity it can’t be withdrawn
This is another misconception that you may have heard from clients over the years. You can help clients understand that while significant surrender charges may apply in the early years of a contract, there are certain options and circumstances that allow for liquidity during this period.
Furthermore, income riders are often available (for an additional fee) that allow for guaranteed withdrawals prior to annuitization. However, it’s important to note for clients that once the annuity is annuitized at retirement, accessing those funds beyond income payments is generally not allowed.
Myth: If I pass away, the insurance company will keep all the money in the annuity
Your clients may think this because in the past, the primary option for annuity holders was a life-only payout – one that ended payments upon the death of the holder. You can help them understand that today, there are annuitization options that they may choose from that will not end payments when they pass away.
Most annuities offer options for named beneficiaries to continue receiving annuity payments after the death of the annuitant within a specified period. Work with your clients to help them understand other beneficiary options that may be available and any associated fees.
Myth: Annuities are too hard to understand
While annuities certainly have some complexities, there’s no need for your clients to wholly ignore them in favor of other options – especially if there’s the potential that an annuity is a good fit for them.
The bottom line: Educating your clients on the facts and removing uncertainty about the myths surrounding annuities can help you help them make the best decision for their situation.
Read more about answering clients’ questions about annuities.
Annuities are intended as vehicles for long-term retirement planning, which is why withdrawals reduce an annuity’s remaining death benefit, contract value, cash surrender value and future earnings. Annuities also may be subject to income tax and, if taken prior to age 59 ½, an additional 10% IRS tax penalty may apply.
Product guarantees are backed by the financial strength and claims-paying ability of the issuing company.
Annuities are not a deposit, not insured by any federal government agency, carry no bank or credit union guarantee, are not FDIC/NCUA insured and may lose value.
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